Small businesses make SEZ a big hit

Special they are... for smaller companies. For those of you who thought that special economic zones (SEZs) were investment hot spots for India Inc’s creme de la creme, here’s a bit of info that should make you sit up.

A recent commerce ministry estimate suggests that eight out of every 10 units coming up in various single and multi-product SEZs are being set up by small or medium-sized firms. Of the 1,100-odd units already functional in about 30 SEZs, 850 are small firms. It is expected that another 73 notified SEZs will get functional by the year-end, being home to another 2,000 small and mid-size units.

Though official figures for investments that these SEZs have generated from smaller companies are not available, it is expected to be well above Rs 30,000 crore. Once the projects in the pipeline get underway, this figure would be well in excess of Rs 1.5 lakh crore.

The existing units already employ well over 2 lakh skilled and unskilled manpower and have the potential to employ another 3 lakh in the next couple of years. Not without reason, the big daddies of the SEZ business like Reliance and Adani, among others, are marketing their SEZs to smaller companies in key industrial clusters across the country.

The Adanis, for instance, have on their radar small companies from Gujarat’s textiles and gems & jewellery industries. They are also making a pitch for allied industries in the automobile sector while trying to get big carmakers like Suzuki as an anchor firm in the Mundra SEZ.

Does this mean SEZs will be like a classical convergence of the big promoter, of the likes of Reliance and Adani, with small and mid-cap occupants? Says Anil Mukim, joint secretary, commerce ministry, “It’s a win-win situation for the promoters as well as the occupants. SEZs throw up attractive tax incentives, which are sought by smaller companies.”

Industry associations Assocham and Ficci are lobbying with the government for special treatment and added tax benefits to be extended to SMEs setting up units in SEZs. Says Assocham secretary-general D S Rawat: “The foundations for the future economic growth will be laid by today’s small, emerging companies. The SEZ platform could be used for leveraging the SME potential.”

That possibly explains why Reliance Industries’ ambitious SEZ projects in Navi Mumbai and Jhajjar have already started attracting queries from small and mid-sized companies across diverse sectors. This, despite the fact that RIL’s Jhajjar project has not even been tabled for approval and the Navi-Mumbai project is likely to get a go-ahead only by the month-end.

The company has received over 1,000 expressions of interest from small firms. “The response has really been phenomenal. However, we would be able to share details only when the projects are functional,” said an RIL spokesperson. In its Jhajjar SEZ, Reliance aims at creating about 1.5 lakh jobs and investment of over Rs 10,000 crore through the small and medium enterprises sector.

There are similar projections for the Navi-Mumbai project. To create a fusion of big and small companies in the project, Surat SEZ has embarked upon a very interesting strategy. Across sectors, mainly gems & jewellery, engineering & electronics and textile, the project has signed up one well-known company as an anchor occupant. Most others are SMEs. “There’s no deliberate strategy in this though. It’s just that the major growth is likely to be coming in from the SMEs,” says Surat SEZ head Vikas Kumar.

Experts keeping a tab on SME participation in SEZs say that while a lot of mid-sized firms will invest in setting up units in big-ticket multi product SEZs, smaller firms would prefer relatively modest single-product SEZ ventures. According to sources in the Haryana State Industrial Development Corporation, most companies setting up units in Orient Craft’s 200-acre textile SEZ in Gurgaon are about Rs 50-crore garment companies.

Says Orient Craft MD Sudhir Dhingra, “Between 75-80% of the occupancy in the project should come from small companies.” The Orient Craft project has also incentivised some erstwhile exporters to turn manufacturers. “I know of 2-3 such companies which were earlier only sourcing readymade garments and exporting to some European markets. They are now setting up full-fledged units, thanks to the incentives that SEZs have on offer for them,” an HSIDC executive says.

Sunil Parekh, who as advisor to credit rating and research firm Crisil, has studied the port-led developments in Gujarat extensively, says that unlike bigger SEZs like the ones being set up by Reliance and Essar, the smaller, sector-specific SEZs are primarily targeted at small and medium-size firms.

“India’s economic growth is driven by smaller companies. In the unfolding India story, the key players will be a handful of big players and a host of small companies. A well-connected SEZ could become the entrepreneurs best bet to the markets,” he adds.